Why Have Interest Rates Dropped?

The headlines agree mortgage interest rates have dropped substantially below initial projections. Many who are considering purchasing a home, or moving up to their dream home, might think that they should wait to buy, because rates may continue to fall.

A recent article on the Economists’ Outlook blog by the National Association of REALTORS® (NAR) provides insight into one major factor in the decline in interest rates, the crude oil price.

“As of January 5, 2015, the U.S. Energy Information Administration (EIA) reported that the price of regular gasoline was $2.20/gallon, the lowest since gas prices peaked to about $ 4/gallon in May 2011.”

You may have noticed that filling your gas tank has become substantially less expensive in recent months. A welcome change from the close to $5 a gallon that many Americans were paying this time last year. The average US household is projected to save around $550 in 2015.

So what does that have to do with Interest Rates?

Based on Freddie Mac’s weekly mortgage survey as of January 22, 2015, the 30-year fixed rate averaged 3.63% and the 15-year fixed rate averaged 2.93%.

“The decline in oil prices is generally positive to households by way of the gas savings and lower mortgage payments. That savings will boost consumer spending in other areas. But there may be some layoffs in oil-producing states.”

How long will rates stay low?

No one really knows how long oil prices will continue to support low mortgage rates. In a New York Times article, the author points to the fact that “adding hundreds of billions of dollars to consumer spending” could start to have a “counter effect” on rates as the economy continues to strengthen.

“If firms start hiring again, and wages increase — that’s when the level of all interest rates in the U.S. would increase.”

Don’t wait too long

The low interest rates we are currently experiencing are not going to stay around forever. The current projections from Freddie Mac, Fannie Mae, NAR and the Mortgage Bankers Association all agree that interest rates will increase to between 4.3-5.4% by the end of 2015.

Bottom Line

NAR reports: “At the median home price of $205,300, a 0.75 percentage point drop in mortgage rates will yield savings of about $1,000 annually.”

If you are in a position to buy a home make sure that you meet with a local real estate professional with their finger on the pulse of what’s going on in the market. Don’t let a delay in purchasing impact your family’s financial future.

“This was our first time buying a house and we were very glad that we had help from Kent. He gave us all the information we needed and good advice on securing the home we wanted when there were other interested buyers. I felt like things were favorable for us as well as the sellers.”

“I have used Kent to buy a home, sell a home, and to buy a home again. I get anxiety going through the whole process but Kent was always there to touch base and reassure me. Honestly, his professionalism and then his friendship are the reasons why I always turn to him when I'm ready to move. Also, his team does a great job of follow upand are quick to get the ball rolling. Overall the ending has always been a great experience for me.”

“We have purchased and sold four homes prior to our latest purchase of a home. We used the services of J. Kent Erickson for the sale of our last home and the purchase of the one we currently occupy. We were pleased with the services of our previous agents, but Kent stood out above them in all respects. We were truly amazed at the kind of effort and attention he was able to provide. We have recommended him to other family members and friends and would never turn to anyone else as long as he is available.”